ECB Sees Virus Restrictions Adding To The Regions’ Bumpy And Fragile Recovery

Notes/Observations

• Quiet EU session with little key economic releases; fixed-come issuance picking up in the new quarter
• President Trump’s discharged from Walter Reed Medical Center after a three-night hospital stay for COVID-19 treatment
• Continued optimism that US Congress could agree on new stimulus to offset the economic impact of the coronavirus.

Asia:

• South Korea Sept CPI registered its fastest annual pace since March ( Y/Y:1.0% v 0.5%e)
• Australia Aug Trade Balance (A$): 2.6B v 5.1Be
• RBA left the Cash Rate Target unchanged at 0.25% and maintained its Yield Target at 0.25% (as expected). To maintain highly accomodative settings as long as needed. Policy package was working as expected. Considering additional easing if needed to support job; addressing high rate of unemployment as a national priority

Europe:

• Eurogroup chief Donohoe (Ireland): Euro currency appreciation due to the region’s strong response to the economic slump caused by the virus
• EU Commission to allow budget rules to remain suspended in 2021. General Escape Clause will remain active in the year 2021 and fiscal policies should continue to support the recovery next year, both at the level of the euro area and in individual member states
• UK rebel Tory PMs said to have enough votes to overturn 10PM local curfew (Reminder: On Sept 21st PM Johnson announced a new curfew for pubs which ordered them to close at 10pm local time from Thursday (Sept 24th) as part of new coronavirus restriction)

Americas:

• President Trump tweet: “I will be leaving the great Walter Reed Medical Center today at 6:30 P.M (Monday). Feeling really good! Don’t be afraid of Covid. Don’t let it dominate your life. We have developed, under the Trump Administration, some really great drugs & knowledge. I feel better than I did 20 years ago!”
• President Trump resident’s Doctor Conley: President has continued to improve over last 24 hours; he was not entirely out of the woods but he met or exceeded all discharge criteria. Trump had no respiratory complaints; had not had fever in over 72 hours and oxygen levels were normal

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.28% at 364.62, FTSE -0.50% at 5,913.05, DAX -0.16% at 12,807.25, CAC-40 -0.14% at 4,865.08, IBEX-35 +0.57% at 6,877.00, FTSE MIB -0.08% at 19,249.50, SMI -0.84% at 10,216.55, S&P 500 Futures -0.21%]
• Market Focal Points/Key Themes: European indices open modestly higher (with FTSE100 and SMI slightly in the red), but later slipped to trade mostly lower; better performing sectors include utilities and materials; sectors to the downside include health care and technology; reportedly UK to rescind order closing pubs at 10pm;Premier Oil to be acquired by Chrysaor; reportedly Spain considering extending furlough program past January; Danone to complete divestment of Yakult Honsha stake; earnings expected during the US session include Paychex

Equities

• Consumer discretionary: Watches of Switzerland [WOSG.UK] +20% (trading update), Aryzta [ARYN.CH] +1% (earnings), PostNL [PNL.NL] +12% (raises outlook), PostNL [PNL.NL] +12% (raises outlook), Puma [PUM.DE] -3% (placement)
• Technology: Gooch & Housego [GHH.UK] +4% (trading update), Logitech [LOGN.CH] -6% (Apple to stop selling rivals’ headphones and wireless speakers at their stores to focus on own product line)
• Materials: Ferrexpo [FXPO.UK] -5% (production)

Speakers

• ECB chief Lagarde reiterated stance that recovery is bumpy and uneven. Monetary and fiscal policy must work hand-in-hand and added that the ECB had not reached the reversal rate. Reiterated that ECB did not target the exchange rate but attentive to exchange rate developments
• ECB’s De Cos (Spain) reiterated Council view that region’s economic recovery was unequal, incomplete, fragile
• ECB’s Makhlouf (Ireland): Average inflation targeting is one of the options that should be looked at (**Note: refers to strategic review)
• Norway Central bank (Norges) Gov Olsen reiterated stance that was willing to contemplate negative interest rates if financial markets weare hit by a renewed wave of turmoil
• UK Chancellor of the Exchequer Sunak (Fin Min) reiterated stance that sought to restore public finances to level of sustainability. Focus to shift to finances once we get through the virus. Local lockdowns are working and seek to avoid a blanket national intervention
• German Fin Scholz stated that he was determined that EU Recovery Funds were available in 2021, swift implementation was key
• EU’s Sefcovic stated that the region needed all its energy for a Brexit deal with UK but must be ready for all outcomes
• Italy Health Min Speranza: Italy will reinforce measures against pandemic; to announce new measures on Wed, Oct 7th
• Spain govt official Escriva: Prepared to extend its furlough program beyond January
• Czech Central Bank Vice Gov Mora: No urgent need for more monetary policy changes
• Australia FY20/21 budget forecasted budget deficit at A$213.7B v A$184.5B prior projection with the plan including A$98B in stimulus measures. To spend A$4.0B in 2020/21 thru 2022/23 period to help boost youth employment and spend A$3.0B for infrastructure projects. To cut income tax which would boost 2020/21 GDP by A$3.5B. Budget forecasted GDP at -1.5% in 2020/21, with growth of 4.75% in 2021/22 and growth of +2.75% in 2022/23

Currencies/Fixed Income

• USD was steady in quiet trade on Tuesday and locked in established range. Continued hops that the US could agree on a fresh stimulus package did little to sway any further unwinding of safe-haven flows.
• EUR/USD unable to sustain momentum to break above the 1.18 level even after Eurogroup chief Donohoe (Ireland) noted that the Euro currency appreciation due to the region’s strong response to the economic slump caused by the virus. Concerns lingered on new measures that various EU govt were imposing to combat the rise in coronavirus infections.
• GBP/USD briefly tested the 1.30 handle before drifting lower . Better UK Construction PMI data helped to limit the downside.

Economic Data

• (DE) Germany Aug Factory Orders M/M: 4.5% v 2.9%e; Y/Y: -2.2% v -3.5%e
• (HU) Hungary Aug Industrial Production M/M: 6.8% v 4.2%e; Y/Y: -0.2% v -3.2%e
• (DE) Germany Sept Construction PMI: 45.5 v 48.0 prior
• (SE) Sweden Aug Private Sector Production M/M: 1.2% v 3.2% prior; Y/Y: -3.9% v -4.4% prior
• (SE) Sweden Aug Industrial Orders M/M: 5.6% v 5.4% prior; Y/Y: 0.0% v -6.9% prior
• (SE) Sweden Aug Industry Production Value Y/Y: +0.2% v -6.5% prior; Service Production Value Y/Y: -5.5% v -3.9% prior
• (UK) Sept Construction PMI: 56.8 v 54.0e
• (NG) Nigeria Sept PMI (whole economy): 52.5 v 54.6 prior
• (IS) Iceland Sept Preliminary Trade Balance (ISK): -3.8B v -11.3B prior

Fixed Income Issuance

• (EU) EFSF opened its book to sell EUR-denominated 7-year and 30-year bonds
• (SE) Sweden opened book to sell USD-denominated Oct 2022 bond; guidance seen +3bps to mid-swaps
• (ES) Spain Debt Agency (Tesoro) sold total €3.313B vs. €3.0-4.0B indicated range to sell 6-month and 12-month bills (Sept 8th 2020)
• (ID) Indonesia sold total IDR26.1T vs. IDR20.0T target in bills and bonds
• (AT) Austria Debt Agency (AFFA) sold total €1.15B s. €1.15B indicated in 2024 and 2030 RAGB Bonds
• Sold €632.5M in 0.0% July 2024 RAGB bond; Avg Yield: -0.693% v -0.645% prior; Bid-to-cover: 3.38x v 2.59x prior (Aug 4th 2020)
• Sold €517.5M in 0.0% Feb 2030 RAGB bond; Avg Yield: -0.389% v -0.352% prior; Bid-to-cover: 3.55x v 3.0x prior (Aug 4th 2020)
• (UK) DMO sold £3.25B in new 0.125% Jan 2024 Gilts; Avg Yield: -0.026% v -0.051% prior; bid-to-cover: 2.44x v 2.57x prior Tail: 0.3bps v 0.3bps prior

Looking Ahead

• (RU) Russia Sept Light Vehicle Car Sales Y/Y: +0.6%e v -0.5% prior
• (MX) Citibanamex Survey of Economists
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (DE) Germany to sell I/L 2030 and 2046 Bonds (Bundei)
• 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month Bills
• 05:30 (ZA) South Africa to sell combined ZAR6.6B in 2030, 2040 and 2048 bonds
• 06:30 (UK) DMO to sell £750M in 1.75% 2049 Gilts
• 06:45 (US) Daily Libor Fixing
• 07:00 (TR) Turkey to sell 1.5% I/L 2025 Bonds
• 07:00 (MX) Mexico July Gross Fixed Investment: -21.4%e v -24.1% prior
• 07:00 (MX) Mexico Vehicle Production: No est v 293.5K prior; Vehicle Exports: No est v 257.6K prior
• 07:30 (TR) Turkey Sept Real Effective Exchange Rate (REER): No est v 63.71 prior
• 07:45 (US) Goldman Economist Chain Store Sales
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Aug Trade Balance: -$66.2Be v -$63.6B prior
• 08:30 (CA) Canada Aug Int’l Merchandise Trade (CAD): -2.1Be v -2.5B prior
• 08:55 (US) Weekly Redbook LFL Sales data
• 09:00 (EU) Weekly ECB Forex Reserves
• 09:00 (EU) ECB’s Lagarde
• 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed)
• 10:00 (US) Aug JOLTS Job Opening: 6.500Me v 6.618M prior
• 10:00 (MX) Mexico Weekly International Reserves data
• 10:30 (ZA) South Africa Central Bank (SARB) Monetary Policy Review
• 10:40 (US) Fed Chair Powell at NABE Conference
• 11:30 (IE) ECB’s Lane (Ireland, chief economist) at event
• 11:45 (US) Fed’s Harker
• 12:00 (RU) Russia Sept CPI M/M: -0.1%e v 0.0% prior; Y/Y: 3.7%e v 3.6% prior
• 12:00 (RU) Russia Sept CPI Core M/M: 0.2%e v 0.3% prior; Y/Y: 3.2%e v 3.1% prior
• 12:00 (RU) Russia Q4 Consumer Confidence Index: No est v -30 prior
• 13:00 (US) Treasury to sell 52-week bills
• 13:00 (US) Treasury to sell 3-year notes
• 14:00 (US) Fed’s Bostic
• 16:30 (US) Weekly API Oil Inventories
• 17:00 (KR) South Korea Sept Foreign Reserves: No est v $419.0B prior
• 17:30 (AU) Australia Sept Performance of Services Index: No est v # prior
• 18:00 (US) Fed’s Kaplan
• 20:30 (HK) Hong Kong Sept PMI Composite: No est v 44.0 prior
• 21:10 (JP) BOJ Outright Bond Purchase Operation in 3~5 Years maturities
• 23:00 (ID) Indonesia Sept Foreign Reserves: No est v $137.0B prior